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The Day Ahead: Blind-Date Jitters

Oct 03, 2012 | 09:00 AM EDT

With the advent of monthly-fee dating services, gone is a certain element of fear that had always been built into the blind-date equation. Will the person be as good-looking as they sounded on the rotary phone? Were they lying about their age? They sure sounded as if they enjoy sipping on Geritol -- while on the rotary phone. What will the exit plan be if things head horribly south in 15 minutes?

But, while much of the blind-date fear has fallen by the wayside -- thanks in large part to
Facebook's(FB) Instagram -- there is still that sense of
unknown. As I have gone through all sorts of research on stocks and the market of late, the fear has been jumping off the screen from itty-bitty second-quarter footnotes on 10-Q filings. It's been apparent in trend analyses of items as simple as sales and segment margins -- spare the extra second and step beyond praying at the altar to the "consolidated op. margin," as it's quite helpful in determining a more complete thesis on the company. Finally, I've heard it via recent analyst day circuits.

In fact, to really take it to a level of creepiness, the point came long ago at which certain words -- whether good or bad -- began to appear in 3-D images in bold, black ink. The pros will understand what I just said; others might say some simple laughter will put me at ease.

Then there are market happenings that must be watched. I have often stressed the importance of maintaining a running log of these, and I hope you've been following suit. Right at this very moment the true state of ugliness is trapped beneath the following: (1) initial strength in stocks at the session open; and (2) head-fakes at the close of trading that mask what went down in many sectors from 11 a.m. to 3 p.m. EDT.

Prep Course for Daily Blind Date with Stocks

¿ Realize that the market is not under pressure from
Apple(AAPL - Get Report) having near-term supply constraints. (Think: the stock has been sold, so where has that money gone? Maybe it's passed into defensive utilities?) It's not suffering from a Facebook CEO that is trying to extract top talent from Russia,
Papa John's(PZZA - Get Report) giving away free pizzas, nor even from
Yahoo!(YHOO - Get Report) grabbing headlines every time the new CEO speaks. See the absurdity in those comments? The market, as I see it, is comparable to a person trapped in a box slowly filling with water: It does not know where it can turn to escape to safety. That, coupled with the typical apprehension around earnings season -- which is only magnified now, as we have entered fiscal-cliff danger zone -- is the sentiment and realism that are driving stocks after a euphoric event.

Ask yourself this if you're yearning to jump in. In the Institute for Supply Management manufacturing survey, is the consumer-confidence measure that may have transmitted into it a reflection of prior stock price appreciation? If so, is that measure at risk of reversing in October, November and December?

What I characterize as "garbage stocks" -- shares of companies with weak fundamentals and trading at discounts to peers in terms of valuation -- are not attracting bottom-fishers. How do I arrive at this conclusion? The "garbage stocks" continue to fall further from their 50-day moving averages.

What I characterize as "sexy stocks" are putting in weak defenses of their 50-day moving averages, looking at volume, or they look destined for a test. If these companies continue to deserve their valuation spread relative to "garbage stocks," based on superior fundamentals, shouldn't there should be greater interest on a pullback? The fact that there isn't suggests further cream must be sliced from the toppy valuation.